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Attorneys sued for blowing eDiscovery budget in high stakes case

This summer, Devon IT sued its lawyers, Mitts Milavec (now Mitts Law), for mishandling its lawsuit against IBM. The malpractice complaint alleges Mitts Milavec mismanaged eDiscovery, expert, and other outside vendors, who ultimately quit, forcing Devon IT to settle for “a mere fraction of what Mitts represented … to be a minimum value of the case”: $100 million (to be read in a Dr. Evil voice).

The below summary is based mostly on the verified allegations of the complaint. Unlike the usual attorney malpractice case, there are no allegations of blown deadlines or erroneous legal positions. Instead, most of the allegations relate to fiscal mismanagement.

In November 2009, Devon IT, a maker of thin-client computers, engaged Mitts Milavec to sue IBM. At that time, Devon IT agreed to pay all litigation costs and a blended rate of $250 per hour for attorney’s fees. On June 16, 2010, Mitts Milavec filed the underlying suit alleging IBM and its executives used false and deceptive revenue projections to entice Devon’s $12 million investment in IBM and cause it to spend another $50 million to reorganize its business. Devon IT sought treble damages and attorneys’ fees. Devon IT, Inc. v. IBM Corp., Case No. 2:10-cv-02899 (E.D. Penn., filed June 16, 2010).

In March 2011, at the recommendation of Mitts Milavec, Devon IT entered into agreements with Buford Finance to fund the litigation. Under these agreements, Buford would front $4 million in litigation fees and costs in exchange for a portion of the proceeds. At that time, Devon also changed its fee agreement with Mitts Milavec. Instead of charging hourly fees and billing expenses, Mitts Milavec agreed that $2,825,000 of the $4 million provided by Buford would cover all litigation fees and expenses (including expert witness fees) through the completion of trial. Mitts Milavec would also receive 5% of any recovery.

Thereafter, at the recommendation of Mitts Milavec, Devon IT retained Kroll as its eDiscovery vendor, FranklyLegal, LLC to provide contract attorneys for document review, and EconLit and ParenteBeard as damages experts. These vendors began issuing invoices to Mitts Milavec and Devon IT. Based on the parties modified fee agreement, Devon IT forwarded all invoices it received to Mitts Milavec for payment. The bills quickly mounted; and, on December 22, 2011, Mitts Milavec informed Devon IT that it had already exhausted all of the Buford funds. Moreover, at that time, Mitts Milavec “forecast it will take at least $2 million [more] to take this case to trial.”

Nonetheless, Mitts Milavec had not actually kept up with the bills. On February 10, 2012, Mitts Milavec informed Devon IT “for the first time that the amount of unpaid invoices from ParenteBeard was” over $480,000 and that ParenteBeard expected to charge an additional $525,000 to provide services through trial. On February 22, 2012, Devon IT learned that Mitts Milavec had paid none of the Kroll invoices, but $720,000 of the original $4 million remained in Mitts Milavec’s possession

Eventually, the vendors ceased providing services for the IBM case. For example, on March 23, 2012, Kroll shut down access to its eDiscovery system. Without access, “the plaintiffs were substantially impeded in their ability to prosecute the IBM Litigation, and this forced them to enter into settlement negotiations with the defendants in the IBM Litigation at a substantial disadvantage.” In October 2012, Devon IT settled the IBM case “at a number less than its true value due to defendants’ actions.” The complaint provides no explanation for why it took over six months to actually settle the case.

In the meantime, Mitts Milavec moved to withdraw but also moved for an attorneys’ charging lien or imposition of a constructive trust. Devon IT and IBM opposed. FranklyLegal, ParenteBeard, and EconLit each moved to intervene to secure payment.

failed to obtain a budget from FranklyLegal, EconLit, and ParenteBeard;

failed to supervise the contract attorneys hired for document review;

failed “to provide and maintain a budget to ensure proper accounting and use of the litigation financing”;

failed to keep plaintiffs “advised of the status of its case, progress of services being rendered by experts and litigation consultants, and the ongoing exorbitant costs being accumulated by the respective providers for such services”;

misrepresented the amount of the funding that was used, paid, and remained available at various times; and

misrepresented that it would cover all costs and expenses related to the IBM case.

No answer has yet been filed, but the moral of the story is already clear: Take care to budget, document, and advise your client of eDiscovery and other expenses, lest your client become your adversary.

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